BASILAN, Philippines (Reuters) - Philippine troops launched an offensive on Friday on Muslim rebels holding at least 20 hostages and President Gloria Macapagal Arroyo said she would not back off until the guerrillas surrendered or were killed.

A spokesman for the Abu Sayyaf rebels told a radio station by telephone that two of the hostages -- who include three Americans and 17 Filipinos -- had been killed in the fighting and others would be executed if the military continued its attack.

There was no confirmation of the rebel claim but radio reports said at least 12 guerrillas were killed. Two soldiers died and over two dozen people, including troops and villagers, were injured, reports from the military and evacuees said.

Thousands of villagers fled the fighting on the mountainous, forested island of Basilan, 550 miles south of Manila, as the military used howitzers and rocket-firing helicopter gunships to pin down the rebels.

Arroyo vowed not to back down, as relatives of some of the hostages pleaded for a halt to the offensive, saying more lives would be lost.

"Military operations is the only option," she told Reuters in an interview. "If the bandits find it in their hearts that they will surrender their hostages unconditionally, then that is the other option."

Arroyo, who named Margaret Thatcher, Golda Meir and Queen Elizabeth I as women leaders she admired, said: "We are showing the world we are enforcing the law. That is our response. We are not surrendering to lawless elements. We have a job to do and we are going to do it as best we can."

Asked about possible casualties among the hostages, she said: "I don't think it's wise to be discussing the consequences."

The military said it had no reports that any of the hostages were hurt in the fighting, the first encounter between the guerrillas and soldiers who had been hunting for them over scores of islands since the hostages were seized on an island resort on Sunday.

About 100 guerrillas were involved in the clashes.

Military commanders said the rebels were fleeing with their captives toward a stronghold atop a 1,900 foot mountain. Troops were attempting to keep ``in contact'' and sporadic fighting was continuing, one officer said.

Late into the evening, truckloads of soldiers could be seen moving toward the battle zone from other parts of Basilan. But pursuit operations were slowed by heavy rains at nightfall.

A Filipino couple caught in the crossfire were treated in a hospital for burns which they said they suffered after a rocket slammed into their house in Tuburan town, setting it on fire.

"Suddenly, our house exploded. I looked for my wife. I couldn't find her... I did not know I had been hit," Abdullah Isah told Reuters in the hospital.

FILIPINO HOSTAGE IN TEARS

The rebel spokesman did not say which two hostages had been killed in the fighting.

The sounds of gunfire could be heard in the background during his call, which was broadcast live.

A Filipino woman, who sounded close to tears and told a radio station she was one of the hostages, appealed to the armed forces to halt the assault.

"We are all right but these encounters are going to cost us our lives. We have children with us. I beg of you to please consider, to just sit down on the negotiating table and try and find a way to get everybody out safely," she said.

She said the three American hostages, who include a missionary couple, were with her group.

More than 2,000 soldiers were being deployed to surround the rebels and stop them escaping with their hostages, but armed forces spokesman Brigadier-General Edilberto Adan said it could take days to cordon off the 10 km (six miles) by 18 km (11 miles) zone of rugged terrain.

"It is jungle terrain where visibility is poor... You won't see anything 15 yards ahead of you," he said.

The Abu Sayyaf has an avowed goal of establishing an independent Muslim homeland in the south of the mainly Roman Catholic country, but its main interest appears to be kidnapping.

Last year, they seized more than 40 foreigners and Filipinos from Jolo island, near Basilan, and nearby Malaysian resorts. All but one Filipino were freed, after payment of ransoms reputedly totaling $20 million, or escaped.

Abu Sayyaf spokesman Abu Sabaya said the group had kidnapped another 10 people, mostly fishermen, since Sunday, evading a dragnet spread by the military to intercept them.

The Abu Sayyaf has made unfounded claims in the past that hostages they were holding had died in clashes. They have also threatened to kill hostages without doing so, but executed two teachers last year after kidnapping students and staff from two high schools on Basilan.

"The Philippine government does not seem to care about the hostages... why should we?'' Sabaya said on Friday. He said if the assault continued they would begin executing hostages: ''They are no relations of ours.''

Philippine navy patrol craft taking part in a manhunt for Muslim guerrilla kidnappers pounced on an unexpected quarry when they ran into two Chinese fishing vessels poaching in the South China Sea, the foreign department said Friday.

Vice President and Foreign Secretary Teofisto Guingona said the fishermen would probably be freed without charges, but stressed that their confiscated catch would not be returned.

The Chinese embassy here filed a diplomatic protest on Friday, demanding that the fishermen and their boats be released.

It insisted that the Hainan-based vessels drifted into Philippine territorial waters when one of the vessels had engine trouble.

The Chinese were "fishing in the traditional fishing ground in the South China Sea" last Sunday when one of them had "engine failure and drifted with the wind" toward the western coast of Palawan.

On the same day Abu Sayyaf guerrillas snatched 20 tourists and resort staff including three Americans from the Dos Palmas island resort off Palawan's eastern coast.

The gunmen fled south across the Sulu Sea toward their island stronghold of Basilan.

The Chinese embassy said in a note verbale released by the foreign department that the boat was repaired on Tuesday.

"Since none of the crew members can speak English, they failed to notify the local Philippine authorities of the incident and to seek necessary assistance. As a result, when the two vessels with 34 crew members were about to go back, they were suddenly intercepted."

It added: "It is obvious that the crew have no intention of entering or conducting fishing activities in the Philippine waters.

"Therefore, the Philippine side is respectfully requested to have the fishing boats released as soon as possible on the basis of humanitarian concerns and the friendly relations between our two neighboring countries."

Guingona said that after bilateral talks on their territorial disputes in the South China Sea, the two countries decided to adopt "confidence building measures."

In line with this policy, "we'll just confiscate the catch of endangered species and illegal fishing (equipment) and then let them go."

BASILAN, Philippines (Reuters) - Philippine troops launched an offensive on Friday on Muslim rebels holding at least 20 hostages and President Gloria Macapagal Arroyo said she would not back down until the guerrillas surrendered or were killed.

A spokesman for the Abu Sayyaf rebels told a radio station by telephone that two of the hostages -- who included three Americans and 17 Filipinos -- had been killed in the fighting and others would be executed if the military continued its attack.

There was no confirmation of the rebel claim but radio reports said at least 12 guerrillas were killed. The military said two soldiers died and over two dozen people, including troops and villagers, were injured.

Thousands of villagers fled the fighting on the mountainous, forested island of Basilan, 550 miles south of Manila, as the military used howitzers and rocket-firing helicopter gunships to pin down the rebels.

Arroyo vowed not to back down, as relatives of some of the hostages pleaded for a halt to the offensive, saying more lives would be lost.

"Military operations is the only option," she told Reuters in an interview. "If the bandits find it in their hearts that they will surrender their hostages unconditionally, then that is the other option."

Arroyo, who named Margaret Thatcher, Golda Meir and Queen Elizabeth I as women leaders she admired, said: "We are showing the world we are enforcing the law. That is our response. We are not surrendering to lawless elements. We have a job to do and we are going to do it as best we can."

Asked about possible casualties among the hostages, she said: "I don't think it's wise to be discussing the consequences."

The military said it had no reports that any of the hostages were hurt in the fighting, the first encounter between the guerrillas and soldiers who had been hunting for them over scores of islands since the hostages were seized on an island resort on Sunday.

About 100 guerrillas were involved in the clashes.

Military commanders said the rebels were fleeing with their captives toward a stronghold atop a 1,900 foot mountain. Troops were attempting to keep "in contact" and sporadic fighting was continuing, one officer said.

Late into the evening, truckloads of soldiers could be seen moving toward the battle zone from other parts of Basilan.

FILIPINO HOSTAGE IN TEARS

The rebel spokesman did not say which two hostages had been killed in the fighting.

The sounds of gunfire could be heard in the background during his call, which was broadcast live.

A Filipino woman, who sounded close to tears and told a radio station she was one of the hostages, appealed to the armed forces to halt the assault.

"We are all right but these encounters are going to cost us our lives. We have children with us. I beg of you to please consider, to just sit down on the negotiating table and try and find a way to get everybody out safely," she said.

She said the three American hostages, who include a missionary couple, were with her group.

[But the hostages hadn't been split up yet. They all shared the same rented jeepney on the trip into Lamitan.]

More than 2,000 soldiers were being deployed to surround the rebels and stop them escaping with their hostages, but armed forces spokesman Brigadier-General Edilberto Adan said it could take days to cordon off the six miles by 11 miles zone of rugged terrain.

"It is jungle terrain where visibility is poor... You won't see anything 15 yards ahead of you," he said.

[Such an oft-repeated canard doesn't make it real, Most of the island has been put to agricultural use, as coconut, palm, banana and black-pepper plantations. I suppose it wasn't kept well-weeded though.]

The Abu Sayyaf has an avowed goal of establishing an independent Muslim homeland in the south of the mainly Roman Catholic country, but its main interest appears to be kidnapping.

Last year, they seized more than 40 foreigners and Filipinos from Jolo island, near Basilan, and nearby Malaysian resorts. All but one Filipino were freed, after payment of ransoms reputedly totaling $20 million, or escaped.

Abu Sayyaf spokesman Abu Sabaya said the group had kidnapped another 10 people, mostly fishermen, since Sunday, evading a dragnet spread by the military to intercept them.

[The fisherfolk are never given names in the press. Infra dig?]

The Abu Sayyaf has made unfounded claims in the past that hostages they were holding had died in clashes. They have also threatened to kill hostages without doing so but executed two teachers last year after kidnapping students and staff from two high schools on Basilan.

[Don't forget the four they hacked on the run--including the quicky wack job on some chick's breasts. Umm..do they have therapists on Basilan?]

"The Philippine government does not seem to care about the hostages... why should we?" Sabaya said on Friday. He said if the assault continued they would begin executing hostages: "They are no relations of ours."

BASILAN, Philippines (Reuters) - Philippine troops launched an offensive on Friday on Muslim rebels holding at least 20 hostages and President Gloria Macapagal Arroyo said she would not back down until the guerrillas surrendered or were killed.

A spokesman for the Abu Sayyaf rebels told a radio station by telephone that two of the hostages -- who included three Americans and 17 Filipinos -- had been killed in the fighting and others would be executed if the military continued its attack.

There was no confirmation of the rebel claim but radio reports said at least 12 guerrillas were killed. The military said two soldiers died and over two dozen people, including troops and villagers, were injured.

Thousands of villagers fled the fighting on the mountainous, forested island of Basilan, 550 miles south of Manila, as the military used howitzers and rocket-firing helicopter gunships to pin down the rebels.

Arroyo vowed not to back down, as relatives of some of the hostages pleaded for a halt to the offensive, saying more lives would be lost.

"Military operations is the only option," she told Reuters in an interview. "If the bandits find it in their hearts that they will surrender their hostages unconditionally, then that is the other option."

Arroyo, who named Margaret Thatcher, Golda Meir and Queen Elizabeth I as women leaders she admired, said: "We are showing the world we are enforcing the law. That is our response. We are not surrendering to lawless elements. We have a job to do and we are going to do it as best we can."

Asked about possible casualties among the hostages, she said: "I don't think it's wise to be discussing the consequences."

The military said it had no reports that any of the hostages were hurt in the fighting, the first encounter between the guerrillas and soldiers who had been hunting for them over scores of islands since the hostages were seized on an island resort on Sunday.

About 100 guerrillas were involved in the clashes.

Military commanders said the rebels were fleeing with their captives toward a stronghold atop a 1,900 foot mountain. Troops were attempting to keep ``in contact'' and sporadic fighting was continuing, one officer said.

Late into the evening, truckloads of soldiers could be seen moving toward the battle zone from other parts of Basilan.

FILIPINO HOSTAGE IN TEARS

The rebel spokesman did not say which two hostages had been killed in the fighting.

The sounds of gunfire could be heard in the background during his call, which was broadcast live.

A Filipino woman, who sounded close to tears and told a radio station she was one of the hostages, appealed to the armed forces to halt the assault.

"We are all right but these encounters are going to cost us our lives. We have children with us. I beg of you to please consider, to just sit down on the negotiating table and try and find a way to get everybody out safely," she said.

She said the three American hostages, who include a missionary couple, were with her group.

More than 2,000 soldiers were being deployed to surround the rebels and stop them escaping with their hostages, but armed forces spokesman Brigadier-General Edilberto Adan said it could take days to cordon off the six miles by 11 miles zone of rugged terrain.

"It is jungle terrain where visibility is poor... You won't see anything 15 yards ahead of you," he said.

The Abu Sayyaf has an avowed goal of establishing an independent Muslim homeland in the south of the mainly Roman Catholic country, but its main interest appears to be kidnapping.

Last year, they seized more than 40 foreigners and Filipinos from Jolo island, near Basilan, and nearby Malaysian resorts. All but one Filipino were freed, after payment of ransoms reputedly totaling $20 million, or escaped.

Abu Sayyaf spokesman Abu Sabaya said the group had kidnapped another 10 people, mostly fishermen, since Sunday, evading a dragnet spread by the military to intercept them.

The Abu Sayyaf has made unfounded claims in the past that hostages they were holding had died in clashes. They have also threatened to kill hostages without doing so but executed two teachers last year after kidnapping students and staff from two high schools on Basilan.

"The Philippine government does not seem to care about the hostages... why should we?" Sabaya said on Friday. He said if the assault continued they would begin executing hostages: "They are no relations of ours."

Two Philippine soldiers were killed and 21 other people were wounded in a gunfight on Friday as security forces caught up with Abu Sayyaf guerrillas holding 20 hostages including three Americans, officials said.

The Muslim rebels said two of the hostages were wounded in the three-hour clash in the southern island of Basilan, but the military dismissed the claim.

Military spokesmen said two soldiers were killed and 14 other armymen were wounded when the platoon ran into about 100 guerrillas at their jungle camp. There was no word on possible casualties among the hostages and gunmen.

Local officials listed seven civilians injured, all hit with shrapnel apparently from wayward shells. The army denied using artillery.

"The defense perimeter of this kidnapping group for the temporary base that they have established must have been breached by our troops," Brigadier General Edilberto Adan Adan said in Manila.

The firefight was the first contact of any sort with the kidnappers since they seized tourists in an upmarket resort off the western island of Palawan on Sunday and fled southeast by boat across the Sulu Sea.

Adan said troops and air support are rushing to cordon off a 180 square-kilometer (72 square-mile) area, while naval vessels would quarantine the 1,300 square-kilometer island. He gave no timetable for the operation.

President Gloria Arroyo's spokesman Rigoberto Tiglao said they want unspecified cash for the victims, who include US couple Martin and Gracia Burnham, Kansas natives doing Christian missionary work in the Philippines, and Californian Guillermo Sobrero.

Sobrero was born in Peru and became a naturalized American just three weeks ago, the Peruvian embassy in Manila said.

About 1,200 US troops including elite Marines and Navy SEALs began annual naval maneuvers with local troops off the northern Philippines on Friday, but Manila insists none of them are involved in the rescue attempt.

"No assistance from the United States is being received at this time," Adan said.

Using a satellite telephone, Abu Sayyaf spokesman Sabaya called up a radio station in nearby Zamboanga city to report that troops "opened fire on the Abu Sayyaf and the hostages (who were) bathing and swimming in the river."

One of the women hostages, Teresa Ganzon said: "Please refrain from this military action that has made us so afraid. These encounters are going to cost us our lives."

But Adan said "we are not thinking of a cessation of hostilities here. We want to maintain contact with this terrorist group so they cannot escape."

Tiglao said a government "intermediary" is in contact with the kidnappers, who "sent a message that, as we always have known, this has always been for ransom money."

But he ruled out ransom and said the government would talk to them only "if they would be willing to lay down their arms or release their hostages."

The 1,100-member Abu Sayyaf are self-styled Muslim separatists who engage in bombings and kidnappings in a campaign to set up an Islamic state in the southern third of the mainly Roman Catholic Philippines.

They seized 21 people including 10 western tourists from the Malaysian resort of Sipadan last year and shipped them to Jolo island in the southern Philippines, ransoming off all but one of them for millions of dollars.

They beheaded two Filipino hostages during a military a rescue attempt in Basilan last year.

Two Philippine soldiers were killed and 14 others wounded in a gunfight on Friday as they caught up with Abu Sayyaf guerrillas holding 20 hostages including three Americans, officials said.

The Muslim rebels said two of the hostages were wounded in the three-hour clash in the southern island of Basilan, but the military dismissed the claim.

Military spokesmen said two soldiers were killed and 14 wounded when an army patrol ran into about 100 guerrillas at their jungle camp. There was no word on possible casualties among the hostages and gunmen.

Television and radio stations reported three civilians wounded, apparently by a wayward shell. The army denied using artillery.

"The defense perimeter of this kidnapping group for the temporary base that they have established must have been breached by our troops scouring the area," Brigadier General Edilberto Adan Adan said in Manila.

The firefight was the first contact of any sort with the kidnappers since they seized tourists in an upmarket resort off the western island of Palawan on Sunday and fled southeast by boat across the Sulu Sea.

Adan said troops and air support units are rushing to cordon off a 180 square-kilometer (72 square-mile) area, while naval vessels would quarantine the 1,300 square-kilometer island. He gave no timetable for the operation.

President Gloria Arroyo's spokesman Rigoberto Tiglao said they want unspecified cash for the victims, who include US couple Martin and Gracia Burnham, Kansas natives doing Christian missionary work in the Philippines, and Californian Guillermo Sobrero.

Sobrero was born in Peru and obtained his US citizenship three weeks ago, the Peruvian embassy in Manila said.

"No assistance from the United States is being received at this time," Adan said.

About 1,200 US troops including elite Marines and Navy SEALs began annual naval maneuvers with local troops off the northern Philippines on Friday, but Manila insists none of them are involved in the rescue attempt.

Manila has said it would welcome US help in intelligence, but drew the line on ground forces.

With the sound of gunfire ringing in the background, rebel spokesman Sabaya told a local radio station by satellite telephone that troops "opened fire on the Abu Sayyaf and the hostages (who were) bathing and swimming in the river."

Sabaya, who claimed his group arrived in Basilan on Thursday night, also put on air one of the women hostages, Teresa Ganzon.

"Please refrain from this military action that has made us so afraid. These encounters are going to cost us our lives," she said.

But Adan said "we are not thinking of a cessation of hostilities here. We want to maintain contact with this terrorist group so they cannot escape."

A government "intermediary" is in contact with the kidnappers, who "sent a message that, as we always have known, this has always been for ransom money."

However, "no ransom payment or other concessions would be given" and Manila would talk to them only "if they would be willing to lay down their arms or release their hostages. "

The 1,100-member Abu Sayyaf are self-styled Muslim separatists who conduct bombings and kidnappings to pursue their bid to set up an Islamic state in the southern third of the mainly Roman Catholic Philippines.

They seized 21 people including 10 western tourists from the Malaysian resort of Sipadan last year and shipped them to Jolo island in the southern Philippines, ransoming off all but one of them for millions of dollars.

They beheaded two Filipino hostages during a military a rescue attempt in Basilan last year.

ZAMBOANGA, Philippines (Reuters) - Philippine President Gloria Macapagal Arroyo launched a military assault on Muslim rebels holding at least 20 hostages, including three Americans, on Friday and vowed not to back down.

A spokesman for the Abu Sayyaf rebel group told a radio station by telephone that two of the hostages had been killed in fighting with government forces and other hostages would be executed if the military continued its offensive.

But Arroyo stood firm saying her government would never surrender to lawlessness.

"Military operations is the only option," Arroyo told Reuters in an interview as relatives of some of the hostages pleaded for a halt to the offensive, saying more lives would be lost.

"If the bandits find it in their hearts that they will surrender their hostages unconditionally, then that is the other option," said Arroyo, who named Margaret Thatcher, Golda Meir and Queen Elizabeth I as strong women leaders she admired.

Asked about possible casualties among the hostages, she said: "I don't think it's wise to be discussing the consequences."

``We are showing the world we are enforcing the law. That is our response. We are not surrendering to lawless elements. We have a job to do and we are going to do it as best we can.''

TWO SOLDIERS KILLED

The military said it had no reports that any of the hostages -- three Americans and 17 Filipinos seized on an island resort on Sunday -- were hurt in the fighting that began early on Friday in mountainous jungle on Basilan island in the country's south.

Two soldiers were killed and 14 wounded in the three-hour battle but there was no sign of the hostages, officers said .

The battle was the first encounter between the guerrillas and soldiers who had been hunting for them over scores of islands since the hostages were taken.

About 100 guerrillas were involved in the clashes and several of them were killed, the military said.

Military commanders said they had captured an Abu Sayyaf camp on Friday and the rebels were fleeing with their captives toward another stronghold atop a 1,900-foot mountain on Basilan, 550 miles south of Manila.

After the guerrillas abandoned their camp, sporadic shooting continued as soldiers gave chase.

The rebel spokesman did not say which two hostages had been killed in the fighting.

The sounds of gunfire could be heard in the background during his call, which was broadcast live.

A Filipino woman, who sounded close to tears and told a radio station she was one of the hostages, appealed to the armed forces to halt the assault.

"We are all right but these encounters are going to cost us our lives. We have children with us. I beg of you to please consider, to just sit down on the negotiating table and try and find a way to get everybody out safely," she said.

She said the three American hostages, who include a missionary couple, were with her group.

NO HEAVY WEAPONS

More than 2,000 soldiers were being deployed to surround the rebels and stop them escaping with their hostages, but armed forces spokesman Brigadier-General Edilberto Adan said it could take days to cordon off the six miles by 11 miles zone of rugged terrain.

"It is jungle terrain where visibility is poor... You won't see anything 15 meters (yards) ahead of you," he said. "No heavy weapons are being used here. We are not using artillery so as to make sure that we only hit the terrorists."

The Abu Sayyaf has an avowed goal of establishing an independent Muslim homeland in the south of the mainly Roman Catholic country, but its main interest appears to be kidnapping.

Last year, they seized more than 40 foreigners and Filipinos from Jolo and nearby Malaysian resorts. All but one Filipino were freed, after payment of ransoms reputedly totaling $20 million, or escaped.

Abu Sayyaf spokesman Abu Sabaya did not say which hostages had been killed on Friday or make clear whether they were among the three Americans and 17 Filipinos abducted on Sunday. Sabaya said the group had kidnapped another 10 people, mostly fishermen, since Sunday, evading a dragnet spread by the military to intercept them.

The Abu Sayyaf has made unfounded claims in the past that hostages they were holding had died in clashes. They have also threatened to kill hostages without doing so but executed two teachers last year after kidnapping students and staff from two high schools on Basilan.

"The Philippine government does not seem to care about the hostages... why should we?" Sabaya said on Friday. He said if the assault continued they would begin executing hostages: "They are no relations of ours."

MANILA (Reuters) - Four months and many a crisis after taking over as the Philippine president, Gloria Macapagal Arroyo is showing a streak of steel which few could have expected in the former economics professor.

Arroyo, now 54, took office in January after a draining rearguard battle by her predecessor Joseph Estrada to stave off removal by impeachment.

The then vice-president was at the forefront of months of street rallies demanding Estrada's ouster and when the military moved to her side, she succeeded in making it to the top job.

There were whispers of deals with senior military brass, but the petite, youthful Arroyo, earlier best known for packing the crowds in at election time, has left few doubts that she is in charge.

She has been hands-on during the debilitating electoral battle for control for congress, which was launched in March, and when supporters of Estrada attacked the presidential palace on May 1.

A few days after the attack she went down to a shantytown in Manila, where Estrada has many supporters, to distribute food and ask for support.

Her coalition is well on its way to winning a majority in the May 14 elections to both the Senate and the House of Representatives, although a formal declaration of results is not expected until later this month.

MILITARY THE ONLY OPTION

Foreign investors, who have earlier complained that she is long on promise but short on delivering the goods, may be having a cautious rethink.

Markets have reacted relatively calmly to this week's kidnapping by Muslim rebels of American and Filipino hostages from an island resort.

Some traders have said the market has been impressed by Arroyo's statements leaving no doubt that there will be no hush-hush deals with the rebels, as in Estrada's time, and that the military would be allowed to do their job.

On Tuesday, when asked why some foreign investors continued to shun the Philippines, she said: "We have to be firm in solving our problems".

She expressed optimism that foreign investment would not be markedly affected by the kidnappings and that the government would maintain its focus on pursuing key economic reforms.

During an interview with Reuters on Friday, she was even more forthright about the hostage crisis.

"The military option is the only option," she said, her fingers twisting on a white handkerchief held in her lap.

She asked not be to be questioned about the hostage situation since it was an ongoing military affair and was irritated when asked about possible casualties. But she said: "I have given the policy, I don't think it's wise to be discussing the consequences."

DOING WHAT IT TAKES

At home in the ornate Malacanang presidential palace with its chandeliers in every room, carved wood panels and gilded statuettes -- she has lived there as a teenager when her father was president -- Arroyo is clear what she likes about her job.

"It's being able to carry out some of the things I wanted to be done ... to fight poverty for instance."

She added: "As a president you have to make decisions that would hurt people, and that's what I least like."

"In the May 1 affair and in this Abu Sayyaf affair, we are showing the world we are enforcing the law. That is our response. We are not surrendering to lawless elements. We will do what we have to do."

ZAMBOANGA, Philippines (Reuters) - Philippine President Gloria Macapagal Arroyo launched a military assault on Muslim rebels holding at least 20 hostages, including three Americans, on Friday and vowed not to back down.

A spokesman for the Abu Sayyaf rebel group told a radio station by telephone that two of the hostages had been killed in fighting with government forces and other hostages would be executed if the military continued its offensive.

But Arroyo stood firm saying her government would never surrender to lawlessness.

"Military operations is the only option," Arroyo told Reuters in an interview as relatives of some of the hostages pleaded for a halt to the offensive, saying more lives would be lost.

"If the bandits find it in their hearts that they will surrender their hostages unconditionally, then that is the other option," said Arroyo, who named Margaret Thatcher, Golda Meir and Queen Elizabeth I as strong women leaders she admired.

Asked about possible casualties among the hostages, she said: "I don't think it's wise to be discussing the consequences."

"We are showing the world we are enforcing the law. That is our response. We are not surrendering to lawless elements. We have a job to do and we are going to do it as best we can."

TWO SOLDIERS KILLED

The military said it had no reports that any of the hostages -- three Americans and 17 Filipinos seized on an an island resort on Sunday -- were hurt in the fighting that began early on Friday in mountainous jungle on Basilan island in the country's south.

Two soldiers were killed and 14 wounded in the three-hour battle but there was no sign of the hostages, officers said .

The battle was the first encounter between the guerrillas and soldiers who had been hunting for them over scores of islands since the hostages were taken.

About 100 guerrillas were involved in the clashes and several of them were killed, the military said.

Military commanders said they had captured an Abu Sayyaf camp on Friday and the rebels were fleeing with their captives towards another stronghold atop a 567-metre (1,900 foot) mountain on Basilan, 900 km (550 miles) south of Manila.

After the guerrillas abandoned their camp, sporadic shooting continued as soldiers gave chase.

The rebel spokesman did not say which two hostages had been killed in the fighting.

The sounds of gunfire could be heard in the background during his call, which was broadcast live.

A Filipino woman, who sounded close to tears and told a radio station she was one of the hostages, appealed to the armed forces to halt the assault.

"We are all right but these encounters are going to cost us our lives. We have children with us. I beg of you to please consider, to just sit down on the negotiating table and try and find a way to get everybody out safely," she said.

She said the three American hostages, who include a missionary couple, were with her group.

NO HEAVY WEAPONS

More than 2,000 soldiers were being deployed to surround the rebels and stop them escaping with their hostages, but armed forces spokesman Brigadier-General Edilberto Adan said it could take days to cordon off the 10 km (six miles) by 18 km (11 miles) zone of rugged terrain.

"It is jungle terrain where visibility is poor... You won't see anything 15 metres (yards) ahead of you," he said. "No heavy weapons are being used here. We are not using artillery so as to make sure that we only hit the terrorists."

The Abu Sayyaf has an avowed goal of establishing an independent Muslim homeland in the south of the mainly Roman Catholic country, but its main interest appears to be kidnapping.

Last year, they seized more than 40 foreigners and Filipinos from Jolo and nearby Malaysian resorts. All but one Filipino were freed, after payment of ransoms reputedly totalling $20 million, or escaped.

Abu Sayyaf spokesman Abu Sabaya did not say which hostages had been killed on Friday or make clear whether they were among the three Americans and 17 Filipinos abducted on Sunday.

Sabaya said the group had kidnapped another 10 people, mostly fishermen, since Sunday, evading a dragnet spread by the military to intercept them.

The Abu Sayyaf has made unfounded claims in the past that hostages they were holding had died in clashes. They have also threatened to kill hostages without doing so but executed two teachers last year after kidnapping students and staff from two high schools on Basilan.

"The Philippine government does not seem to care about the hostages... why should we?" Sabaya said on Friday. He said if the assault continued they would begin executing hostages: "They are no relations of ours."

MANILA, June 1 (Reuters) - Four months and many a crisis after taking over as the Philippine president, Gloria Macapagal Arroyo is showing a streak of steel which few could have expected in the former economics professor.

Arroyo, now 54, took office in January after a draining rearguard battle by her predecessor Joseph Estrada to stave off removal by impeachment.

The then vice-president was at the forefront of months of street rallies demanding Estrada's ouster and when the military moved to her side, she succeeded in making it to the top job.

There were whispers of deals with senior military brass, but the petite, youthful Arroyo, earlier best known for packing the crowds in at election time, has left few doubts that she is in charge.

She has been hands-on during the debilitating electoral battle for control for congress, which was launched in March, and when supporters of Estrada attacked the presidential palace on May 1.

A few days after the attack she went down to a shantytown in Manila, where Estrada has many supporters, to distribute food and ask for support.

Her coalition is well on its way to winning a majority in the May 14 elections to both the Senate and the House of Representatives, although a formal declaration of results is not expected until later this month.

MILITARY THE ONLY OPTION

Foreign investors, who have earlier complained that she is long on promise but short on delivering the goods, may be having a cautious rethink.

Markets have reacted relatively calmly to this week's kidnapping by Muslim rebels of American and Filipino hostages from an island resort.

Some traders have said the market has been impressed by Arroyo's statements leaving no doubt that there will be no hush-hush deals with the rebels, as in Estrada's time, and that the military would be allowed to do their job.

On Tuesday, when asked why some foreign investors continued to shun the Philippines, she said: "We have to be firm in solving our problems".

She expressed optimism that foreign investment would not be markedly affected by the kidnappings and that the government would maintain its focus on pursuing key economic reforms.

During an interview with Reuters on Friday, she was even more forthright about the hostage crisis.

"The military option is the only option," she said, her fingers twisting on a white handkerchief held in her lap.

She asked not be to be questioned about the hostage situation since it was an ongoing military affair and was irritated when asked about possible casualties. But she said: "I have given the policy, I don't think it's wise to be discussing the consequences."

DOING WHAT IT TAKES

At home in the ornate Malacanang presidential palace with its chandeliers in every room, carved wood panels and gilded statuettes -- she has lived there as a teenager when her father was president -- Arroyo is clear what she likes about her job.

"It's being able to carry out some of the things I wanted to be done ... to fight poverty for instance."

She added: "As a president you have to make decisions that would hurt people, and that's what I least like."

But she left little doubt that she would do what it takes.

"I look up to the strong women in our history," Arroyo said.

"Golda Meir, Margaret Thatcher, Queen Elizabeth I."

On her recent troubles, she said:

"In the May 1 affair and in this Abu Sayyaf affair, we are showing the world we are enforcing the law. That is our response. We are not surrendering to lawless elements. We will do what we have to do."

MANILA (Reuters) - Two soldiers were killed and 14 wounded on Friday in a clash in the southern Philippines with Muslim rebels holding 20 hostages, but none of the captives were found at the scene of the encounter, the military said.

The Muslim extremist Abu Sayyaf rebels -- who seized three Americans and 17 Filipinos from a tourist resort on Sunday -- were also believed to have suffered casualties, armed forces spokesman Brigadier-General Edilberto Adan told reporters.

Abu Sayyaf spokesman Abu Sabaya had told a local radio station earlier that two hostages were killed in the encounter on the southern island of Basilan. He did not identify them.

But Adan said soldiers had found no sign of any hostages in the area where the fighting took place.

"No hostages were found on the scene of the encounter," he said. "There are no confirmed reports of hostages getting hurt."

ZAMBOANGA, Philippines (Reuters) - Philippine troops attacked Muslim rebels holding 20 Filipino and American hostages on Friday and President Gloria Macapagal Arroyo said the assault would continue despite rebel claims two hostages had been killed.

A spokesman for the Abu Sayyaf rebels, who kidnapped the three Americans and 17 Filipinos from an island resort on Sunday, told a radio station by telephone that the rebels would execute hostages if the military offensive continued.

"Military operations is the only option," Arroyo told Reuters in an interview.

"If the bandits find it in their hearts that they will surrender their hostages unconditionally, then that is the other option," said Arroyo, who named Margaret Thatcher, Golda Meir and Queen Elizabeth as strong women leaders she admired.

Arroyo rejected calls from hostages' relatives for a halt to the attack and said her government would not give in to lawlessness.

The rebel spokesman did not say which two hostages had been killed in the fighting. The sounds of gunfire could be heard in the background during his call, which was broadcast live.

The presidential palace said it had not received any reports of civilian victims in the fighting on the island of Basilan, 900 km (550 miles) south of Manila. The military said at least one officer had been wounded.

Asked about possible casualties among the hostages as a result of the policy, Arroyo said: "I don't think it's wise to be discussing the consequences."

"We are showing the world we are enforcing the law. That is our response. We are not surrendering to lawless elements. We have a job to do and we are going to do it as best we can."

A Filipino woman, who sounded close to tears and told a radio station she was one of the hostages, appealed to the armed forces to halt the assault.

"We are all right but these encounters are going to cost us our lives. We have children with us. I beg of you to please consider, to just sit down on the negotiating table and try and find a way to get everybody out safely," she said.

She said the three American hostages, who include a missionary couple, were with her group.

UNCONDITIONAL RELEASE

Presidential spokesman Roberto Tiglao said a military intermediary known to the Abu Sayyaf had made contact with the group but only to talk about the unconditional release of the hostages and the laying down by the rebels of their arms.

Tiglao said it was obvious the rebels wanted ransom but "the government cannot give in to the demands of this bandit group".

A military spokesman said more than 2,000 soldiers were being deployed to surround the rebels and stop them escaping with their hostages, but said it could take days to cordon off the 10 km (six miles) by 18 km (11 miles) zone of rugged terrain.

The military and the rebels differed over where the fighting was taking place. The kidnappers' spokesman said that it was on the island of Jolo but the military spokesman said that it was on Basilan, an island 120 km (70 miles) to the north.

"There are reported casualties but we are verifying who were wounded... One of our officers has been wounded," armed forces spokesman Brigadier General Edilberto Adan told reporters.

He said the military had no report on the condition of the hostages.

Adan said the fighting erupted at about 7 a.m. in jungles around a 530-metre (1,710-foot) mountain.

"It is jungle terrain where visibility is poor... You won't see anything 15 metres (yards) ahead of you," he said. "No heavy weapons are being used here. We are not using artillery so as to make sure that we only hit the terrorists."

The Abu Sayyaf has an avowed goal of establishing an independent Muslim homeland in the south of the mainly Roman Catholic country, but its main interest appears to be kidnapping.

Last year, they seized more than 40 foreigners and Filipinos from Jolo and nearby Malaysian resorts. All but one Filipino were freed, after payment of ransoms reputedly totalling $20 million, or escaped.

Abu Sayyaf spokesman Abu Sabaya did not say which hostages had been killed on Friday or make clear whether they were among the three Americans and 17 Filipinos abducted on Sunday.

Sabaya said the group had kidnapped an additional 10 people, mostly fishermen, since then, evading a dragnet spread by the military to intercept them.

The Abu Sayyaf has made unfounded claims in the past that hostages they were holding had died in clashes. They have also threatened to kill hostages without doing so but executed two teachers last year after kidnapping students and staff from two high schools on Basilan.

"The Philippine government does not seem to care about the hostages... why should we?" Sabaya said on Friday. He said if the assault continued they would begin executing hostages: "They are no relations of ours."

ZAMBOANGA (Reuters) - Philippine troops attacked Muslim rebels holding 20 Filipino and American hostages on Friday and President Gloria Macapagal Arroyo said the assault would continue despite rebel claims two hostages had been killed.

A spokesman for the Abu Sayyaf rebels, who kidnapped the three Americans and 17 Filipinos from an island resort on Sunday, told a radio station by telephone that the rebels would execute hostages if the military offensive continued.

"Military operations is the only option," Arroyo told Reuters in an interview.

"If the bandits find it in their hearts that they will surrender their hostages unconditionally, then that is the other option," said Arroyo, who named Margaret Thatcher, Golda Meir and Queen Elizabeth I as strong women leaders she admired.

Arroyo rejected calls from hostages' relatives for a halt to the attack and said her government would not give in to lawlessness.

The rebel spokesman did not say which two hostages had been killed in the fighting. The sounds of gunfire could be heard in the background during his call, which was broadcast live.

The presidential palace said it had not received any reports of civilian victims in the fighting on the island of Basilan, 550 miles south of Manila. The military said at least one officer had been wounded.

Asked about possible casualties among the hostages as a result of the policy, Arroyo said: ``I don't think it's wise to be discussing the consequences.''

"We are showing the world we are enforcing the law. That is our response. We are not surrendering to lawless elements. We have a job to do and we are going to do it as best we can."

A Filipino woman, who sounded close to tears and told a radio station she was one of the hostages, appealed to the armed forces to halt the assault.

"We are all right but these encounters are going to cost us our lives. We have children with us. I beg of you to please consider, to just sit down on the negotiating table and try and find a way to get everybody out safely," she said.

She said the three American hostages, who include a missionary couple, were with her group.

UNCONDITIONAL RELEASE

Presidential spokesman Roberto Tiglao said a military intermediary known to the Abu Sayyaf had made contact with the group but only to talk about the unconditional release of the hostages and the laying down by the rebels of their arms. Tiglao said it was obvious the rebels wanted ransom but "the government cannot give in to the demands of this bandit group."

A military spokesman said more than 2,000 soldiers were being deployed to surround the rebels and stop them escaping with their hostages, but said it could take days to cordon off the six miles by 11 miles zone of rugged terrain.

The military and the rebels differed over where the fighting was taking place. The kidnappers' spokesman said that it was on the island of Jolo but the military spokesman said that it was on Basilan, an island 70 miles to the north.

"There are reported casualties but we are verifying who were wounded... One of our officers has been wounded," armed forces spokesman Brigadier General Edilberto Adan told reporters.

He said the military had no report on the condition of the hostages.

Adan said the fighting erupted at about 7 a.m. in jungles around a 1,710-foot mountain.

"It is jungle terrain where visibility is poor... You won't see anything 15 meters ahead of you," he said. "No heavy weapons are being used here. We are not using artillery so as to make sure that we only hit the terrorists."

The Abu Sayyaf has an avowed goal of establishing an independent Muslim homeland in the south of the mainly Roman Catholic country, but its main interest appears to be kidnapping.

Last year, they seized more than 40 foreigners and Filipinos from Jolo and nearby Malaysian resorts. All but one Filipino were freed, after payment of ransoms reputedly totaling $20 million, or escaped.

Abu Sayyaf spokesman Abu Sabaya did not say which hostages had been killed on Friday or make clear whether they were among the three Americans and 17 Filipinos abducted on Sunday. Sabaya said the group had kidnapped an additional 10 people, mostly fishermen, since then, evading a dragnet spread by the military to intercept them.

The Abu Sayyaf has made unfounded claims in the past that hostages they were holding had died in clashes. They have also threatened to kill hostages without doing so but executed two teachers last year after kidnapping students and staff from two high schools on Basilan.

"The Philippine government does not seem to care about the hostages... why should we?" Sabaya said on Friday. He said if the assault continued they would begin executing hostages: "They are no relations of ours."

ZAMBOANGA, Philippines (Reuters) - Philippine troops attacked Muslim rebels holding 20 Filipino and American hostages on Friday and President Gloria Macapagal Arroyo said the assault would continue despite rebel claims two hostages had been killed.

A spokesman for the Abu Sayyaf rebels, who kidnapped the three Americans and 17 Filipinos from an island resort on Sunday, told a radio station by telephone that the rebels would execute hostages if the military offensive continued.

"Military operations is the only option," Arroyo told Reuters in an interview.

"If the bandits find it in their hearts that they will surrender their hostages unconditionally, then that is the other option," said Arroyo, who named Margaret Thatcher, Golda Meir and Queen Elizabeth I as strong women leaders she admired.

Arroyo rejected calls from hostages' relatives for a halt to the attack and said her government would not give in to lawlessness.

The rebel spokesman did not say which two hostages had been killed in the fighting. The sounds of gunfire could be heard in the background during his call, which was broadcast live.

The presidential palace said it had not received any reports of civilian victims in the fighting on the island of Basilan, 550 miles south of Manila. The military said at least one officer had been wounded.

Asked about possible casualties among the hostages as a result of the policy, Arroyo said: "I don't think it's wise to be discussing the consequences."

"We are showing the world we are enforcing the law. That is our response. We are not surrendering to lawless elements. We have a job to do and we are going to do it as best we can."

A Filipino woman, who sounded close to tears and told a radio station she was one of the hostages, appealed to the armed forces to halt the assault.

"We are all right but these encounters are going to cost us our lives. We have children with us. I beg of you to please consider, to just sit down on the negotiating table and try and find a way to get everybody out safely," she said.

She said the three American hostages, who include a missionary couple, were with her group.

UNCONDITIONAL RELEASE

Presidential spokesman Roberto Tiglao said a military intermediary known to the Abu Sayyaf had made contact with the group but only to talk about the unconditional release of the hostages and the laying down by the rebels of their arms. Tiglao said it was obvious the rebels wanted ransom but "the government cannot give in to the demands of this bandit group."

A military spokesman said more than 2,000 soldiers were being deployed to surround the rebels and stop them escaping with their hostages, but said it could take days to cordon off the six miles by 11 miles zone of rugged terrain.

The military and the rebels differed over where the fighting was taking place. The kidnappers' spokesman said that it was on the island of Jolo but the military spokesman said that it was on Basilan, an island 70 miles to the north.

"There are reported casualties but we are verifying who were wounded... One of our officers has been wounded," armed forces spokesman Brigadier General Edilberto Adan told reporters.

He said the military had no report on the condition of the hostages.

Adan said the fighting erupted at about 7 a.m. in jungles around a 1,710-foot mountain.

"It is jungle terrain where visibility is poor... You won't see anything 15 meters ahead of you," he said. "No heavy weapons are being used here. We are not using artillery so as to make sure that we only hit the terrorists."

The Abu Sayyaf has an avowed goal of establishing an independent Muslim homeland in the south of the mainly Roman Catholic country, but its main interest appears to be kidnapping.

Last year, they seized more than 40 foreigners and Filipinos from Jolo and nearby Malaysian resorts. All but one Filipino were freed, after payment of ransoms reputedly totaling $20 million, or escaped.

Abu Sayyaf spokesman Abu Sabaya did not say which hostages had been killed on Friday or make clear whether they were among the three Americans and 17 Filipinos abducted on Sunday. Sabaya said the group had kidnapped an additional 10 people, mostly fishermen, since then, evading a dragnet spread by the military to intercept them.

The Abu Sayyaf has made unfounded claims in the past that hostages they were holding had died in clashes. They have also threatened to kill hostages without doing so but executed two teachers last year after kidnapping students and staff from two high schools on Basilan.

"The Philippine government does not seem to care about the hostages... why should we?" Sabaya said on Friday. He said if the assault continued they would begin executing hostages: "They are no relations of ours."

MANILA, June 1 (AFP) -Two soldiers were killed and 14 others were wounded Friday in fighting with Abu Sayyaf guerrillas holding 20 hostages in the southern Philippine island of Basilan, the army said.

Brigadier General Edilberto Adan said two enlisted soldiers were killed in the running battle that erupted early Friday with about 100 heavily armed Abu Sayyaf rebels in a mountainous area of the island.

"The firefight continued with our troops maintaining contact. We would like to report that our soldiers have suffered two killed and 14 of our men wounded," the military spokesman said.

"On the Abu Sayyaf side, we would assume that they have suffered several casualties. In a firefight of that length it would definitely have resulted in casualties among the Abu Sayyaf terrorists," Adan said.

There has been no sighting of any of the hostages, who include three Americans, he added.

Neither has there been confirmation of the claim by Abu Sayyaf spokesman Abu Sabaya that two of the hostages were wounded in the crossfire.

Adan advised civilians living in the sparsely populated area to leave for their own safety.

Troops caught up with the hostage-takers in the Basilan jungle five days after the Abu Sayyaf raided the upmarket resort of Dos Palmas in the western Philippines.

The rebels made off with 20 tourists and resort staff, including US missionary couple Martin and Gracia Burnham of Kansas and Californian Guillermo Sobrero.

The Abu Sayyaf, said by the military to number about 1,100, are self-styled separatists who want an Islamic homeland in the south of the largely Roman Catholic Philippines.

They have engaged in bombings and kidnappings of Christian targets in the south.

They abducted 21 people including 10 western tourists from a Malaysian resort last year and took them to Jolo island in the southern Philippines, ransoming off all but one of them for millions of dollars.

After being seized by Muslim gunmen from a tourist resort, 20 hostages were taken on a gruelling journey across treacherous seas to a southern island -- only to face gunfire Friday.

The three Americans and 17 Filipinos were kidnapped by the notorious Abu Sayyaf group from the Dos Palmas resort in the western Philippines during a dawn raid on Sunday.

The navy was caught flat-footed, giving the rebels an ample headstart as they raced across the Sulu Sea towards their island strongholds in the south.

By the time authorities launched a rescue operation, the 23-strong Abu Sayyaf raiding team was already hauling its prized catch through six-feet (1.8-metre) waves aboard a vessel equipped with three powerful engines.

The military had dispatched reconnaissance planes and helicopters to scan the vast Sulu Sea, but the rebels managed to give their pursuers the slip.

Two days later, their boat as well as several personal items belonging to the hostages were found abandoned off Cagayan de Tawi-Tawi, a small island about 300 kilometers (186 miles) south of Dos Palmas.

The guerrillas were believed to have transferred the hostages to smaller fishing boats commandeered from locals before making their way to Basilan, about 200 kilometers (124 miles) south of Cagayan de Tawai-Tawi.

By Friday the military had caught up. A firefight in the dense jungle killed two soldiers and wounded seven others. Abu Sayyaf spokesman Abu Sabaya told Radio Mindanao Network that two hostages were wounded.

The hostages are believed to be exhausted after spending five days on the run with their captors. At least one of the hostages is a child, aged eight, according to reports.

Teresa Ganzon, one of the captives allowed to speak on the radio by the rebels, appealed to the military to cease its operations and instead negotiate.

"Please refrain from this military action that has made us so afraid," she said via satellite telephone, adding "these encounters are going to cost us our lives."

Ganzon said it was "very hard to run up and down these mountains with children in tow".

But Brigadier General Edilberto Adan, a military spokesman, vowed no let-up in the hunt for the Abu Sayyaf rebels and pledged the captives would be rescued.

Government troops were checking reports that the rebels had seized 10 local fishermen to run errands for them, including gathering firewood to counter the damp and cold nights of Basilan.

"To feed 20 hostages plus more than 20 terrorists, they would need to forage for food, fetch fresh water, gather firewood and they would need help for this," Adan said.

The Abu Sayyaf gained international notoriety last year when they abducted dozens of foreign and local hostages from two raids on Malaysian resorts.

All except one of the hostages have been freed. Filipino diving instructor Roland Ullah is believed to be still languishing somewhere on Jolo island.

One of the former hostages, South African Monique Strydom, advised the new batch of hostages to "keep a cool head and to pray".

In an interview with AFP in Johannesburg this week, she said the rebels were likely to be running low on food, with the hostages scared and weary following their perilous journey.

Arroyo vows no let-up in strikes against rebels - Philippine President Gloria Macapagal Arroyo speaks during an interview with Reuters at the Malacanang presidential palace in Manila on June 1. Arroyo said the military would not let up on its assault against Muslim rebels holding at least 20 hostages. REUTERS/Romeo Ranoco

MANILA (Reuters) - Philippine President Gloria Macapagal Arroyo said on Friday the military would not let up on its assault against Muslim rebels holding at least 20 hostages.

"Military operations is the only option," Arroyo told Reuters in an interview. "If the bandits find it in their hearts that they will surrender their hostages unconditionally, then that is the other option."

Asked about possible casualties among the hostages as a result, she said: "I have given the policy, I don't think it's wise to be discussing the consequences."

A spokesman for the Abu Sayyaf rebels said at least two of the hostages were killed in a gunfight with troops on Friday. The military has said it has no report of any civilian casualties.

"As far as stability is concerned, all countries go through some disturbance at some point in time or the other, but it depends on how the government addresses them," Arroyo said in the interview conducted in the Malacanang presidential palace in Manila.

"We are showing the world we are enforcing the law. That is our response. We are not surrendering to lawless elements. We have a job to do and we are going to do it as best we can."

ZAMBOANGA, Philippines (AP) - Muslim extremists holding 20 hostages - including three Americans - clashed with the military in the southern Philippines early Friday. There were unconfirmed reports of seven people injured, including at least two captives.

Rebel leader Abu Sabaya phoned a local radio station, saying his group was under attack. He repeated a threat to kill the hostages. Near and distant gunfire rang out as he spoke breathlessly to RMN radio station.

"We've received information that a total of seven have been injured, but the information has to be confirmed by the military," presidential spokesman Rigoberto Tiglao said later.

The military said a lieutenant had been wounded, but the identities of other casualties were not known.

Sabaya, a leader of the Abu Sayyaf group, claimed two hostages had been hit by gunfire. He then allowed hostage Teresa Ganzon to talk.

"Please refrain from military action," said Ganzon, her voice breaking. "We are being treated well up to now, but these encounters are going to cost us our lives."

Ganzon said the American hostages were with her group, but she could not confirm if two hostages had been wounded.

"There are children with us. It is not easy to be running in these mountains with children in tow. Please."

Reacting to the appeal, National Security Adviser Roilo Golez said the government is seeking the "unconditional release" of the hostages but that military operations against the Abu Sayyaf will continue.

"The ground commanders have orders to see to the safety of the hostages," Golez said.

Sabaya said the clash started when his men allowed a group of hostages to take a bath in a river. He said advancing troops found them and started firing.

"The soldiers thought they were rebels like us," Sabaya said of the hostages. Refusing to identify who was hit, he raised an ominous possibility: "Maybe we will stage an execution. Welcome to the party."

Col. Jovenal Narcise, leader of an army battalion on southern Basilan island, confirmed the fighting but did not say whether the military had spotted the hostages.

Sabaya said that in addition to the 20 hostages taken Sunday from the Dos Palmas beach resort in the southwestern Philippines, his group also had seized 10 fisherman.

On Thursday, the military threw 5,000 troops into a search for the rebels and their hostages.

With the Philippine president vowing to crush the rebels, Brig. Gen. Romeo Dominguez said his troops were on a "rescue and destroy" mission.

"We just need one initial positive contact and we will get them," Dominguez said Thursday. "If they are found, the shooting will start."

The military blockaded a 60-mile-wide stretch of ocean after local radio quoted residents as saying they saw the hostages Wednesday night in a boat lined with grenades strung together. The Abu Sayyaf warned Tuesday, in its last public contact, that it will kill the captives IF the military tries to rescue them.

Unconfirmed reports put at least some of the hostages on at least three islands. When the military went to check, it found nothing.

Military spokesman Brig. Gen. Edilberto Adan said the abductors will try to slip from island to island in their home waters, using stealth, new equipment and support of some sympathetic residents.

He said the blockade was aimed at preventing access to southern islands where the Abu Sayyaf operates, especially Jolo, where the group has its main bases.

Adan said the U.S. government offered to help the Philippines search for the hostages.

"We don't need combat troops here," Adan said. "What is needed here is information." He noted that the area where the Abu Sayyaf operates is scattered with more than 60 islands.

The U.S. Embassy issued said it remains in close contact with the Philippine government because three Americans are among the hostages. "All of the hostages should be released immediately, safely and unconditionally," the statement said.

The Abu Sayyaf, which claims to be fighting for a separate Muslim state, seized 10 foreign tourists about a year ago from a Malaysian resort. Most were released for millions of dollars in ransom.

ZAMBOANGA, Philippines (Reuters) - Troops clashed with Muslim rebels holding at least 20 American and Filipino hostages in jungles in the southern Philippines on Friday, and the guerrillas said two of the hostages had been killed.

A spokesman for the Abu Sayyaf rebels, who kidnapped the hostages from a Philippine beach resort on Sunday, also told a radio station by telephone that the rebels would execute hostages if the fighting continued. He did not say which hostages died.

A Filipino woman, who sounded close to tears and told a local radio station that she was one of the hostages, appealed for the armed forces to halt their assault.

"We are alright but these encounters are going to cost us our lives. We have children with us. I beg of you to please consider, to just sit down on the negotiating table and try and find a way to get everybody out safely," she added.

She said the three American hostages were with her group.

President Gloria Macapagal Arroyo, an admirer of Britain's "Iron Lady" Margaret Thatcher, has vowed to crush the group and has offered a reward of 100 million peso ($2 million) for information leading to capture of the kidnappers.

National security adviser Roilo Golez said that the government was standing by its no-ransom policy and insisting on the unconditional release of the hostages.

A military spokesman said more than 2,000 soldiers were being deployed to cordon off the rebels and stop them escaping with their hostages, but he added that that operation could take days.

The military and the rebels differed over where the fighting was taking place. The kidnappers' spokesman said that it was on the island of Jolo and the military spokesman said that it was on Basilan, an island 120 km (70 miles) to the north.

The military said that there had been casualties on Basilan but that they were still trying to identify who these were.

"There are reported casualties but we are verifying who were wounded... One of our officers has been wounded," armed forces spokesman Brigadier General Edilberto Adan told reporters.

"We will not yet believe that," Adan said, referring to the rebel claim that two hostages had died in the shootout. "We are trying to confirm the report."

RUGGED JUNGLE TERRAIN

Adan said the military had no official report on the condition of the hostages but that the rebels usually dressed up their captives in fatigue uniform so they would not be detected.

Adan said the fighting erupted at about 7 a.m. in jungles around a 530-metre (1,710-foot) mountain.

"It is a jungle terrain where visibility is poor... You won't see anything 15 metres (yards) ahead of you," he added. "No heavy weapons are being used here. We are not using artillery so as to make sure that we only hit the terrorists."

Adan said it could take days to cordon off the 10 km (six miles) by 18 km (11 miles) zone because of the rugged terrain.

The Abu Sayyaf has an avowed goal of establishing an independent Muslim homeland in the south of the mainly Roman Catholic country, but its main interest appears to be kidnapping.

Last year, they used similar tactics to seize more than 40 foreigners and Filipinos from nearby Malaysian resorts. All but one Filipino were freed, after payment of ransoms reputedly totalling millions of dollars, or escaped.

Abu Sayyaf spokesman Abu Sabaya did not say which hostages had been killed on Friday or make clear whether they were among the initial three Americans and 17 Filipinos abducted on Sunday. The Americans included a missionary couple.

Sabaya said the group had kidnapped an additional 10 people, mostly fishermen, since then.

Last year, the Abu Sayyaf also said two hostages died in a clash with soldiers. The claim turned out to be unfounded. They also threatened then to execute their hostages but never carried out the threat.

"The Philippine government does not seem to care about the hostages... why should we?" Sabaya said on Friday, adding that if the assault continued they would begin executing hostages. "They are no relations of ours," he added.

He said that the assault began on Friday as the rebels and the hostages landed on Jolo, 960 km (600 miles) south of Manila.

Sounds of gunfire could be heard in the background as the radio stations broadcast his calls.

Sabaya had previously said Sunday's hostages had been divided into two groups, one heading for Jolo and one for Basilan.

General Adan said the fighting took place on the east of Basilan. "This is like a cat and mouse game."

The woman hostage, identified by the radio as "Ms Ganzon", said: "I'm one of the hostages here, we are appealing, I am appealing, on behalf of all the other hostages, to please, please refrain from these military actions."

Asked about the rebels' claim that two hostages had been killed, she said: "We got separated, that's what we heard, that there were two who got hurt, that's why we are begging you to stop this so that the others won't get hurt."

Philippine rebels claim two hostages killed in clashes - Filipino soldiers drive a light tank past a mosque in Jolo on June 1 as the army stepped up its search for 20 tourists kidnapped by Muslim rebels. The rebels claimed two hostages had been killed in clashes with troops. Reuters/Erik de Castro

MANILA (Reuters) - The Philippine military said it had received reports of casualties in fighting on Friday between soldiers and Muslim rebels holding at least 20 American and Filipino hostages on the southern island of Basilan.

"There are reported casualties but we are verifying who were wounded... One of our officers has been wounded," armed forces spokesman Brigadier-General Edilberto Adan told reporters.

A spokesman for the Abu Sayyaf group, which is holding at least 17 Filipinos and three American tourists, had told a local radio station two hostages were killed in the clash.

"We will not yet believe that... We are trying to confirm the report," Adan said.

ZAMBOANGA, Philippines (AP) - Muslim extremists holding 20 hostages - including three Americans - clashed with the military in the southern Philippines early Friday, military officials and guerrillas said.

Rebel leader Abu Sabaya phoned a local radio station, saying his group was under attack. He repeated a threat to kill the hostages. Near and distant gunfire rang out as he spoke breathlessly to RMN radio station.

Sabaya, a leader of the Abu Sayyaf group, claimed two hostages had been hit by gunfire. He then allowed hostage Teresa Ganzon to talk.

"Please refrain from military action," said Ganzon, her voice breaking. "We are being treated well up to now, but these encounters are going to cost us our lives."

Ganzon said the American hostages were with her group, but she could not confirm if two hostages had been wounded.

"There are children with us. It is not easy to be running in these mountains with children in tow. Please."

Reacting to the appeal, National Security Adviser Roilo Golez said the government is seeking the "unconditional release'' of the hostages but that military operations against the Abu Sayyaf will continue.

"The ground commanders have orders to see to the safety of the hostages,'' Golez said.

Sabaya said the clash started when his men allowed a group of hostages to take a bath in a river. He said advancing troops found them and started firing.

"The soldiers thought they were rebels like us," Sabaya said of the hostages. Refusing to identify who was hit, he raised an ominous possibility: "Maybe we will stage an execution. Welcome to the party."

Col. Jovenal Narcise, leader of an army battalion on southern Basilan island, confirmed the fighting but did not say whether the military had spotted the hostages.

Sabaya said that in addition to the 20 hostages taken Sunday from the Dos Palmas beach resort in the southwestern Philippines, his group also had seized 10 fisherman.

On Thursday, the military threw 5,000 troops into a search for the rebels and their hostages.

With the Philippine president vowing to crush the rebels, Brig. Gen. Romeo Dominguez said his troops were on a "rescue and destroy" mission.

"We just need one initial positive contact and we will get them,'' Dominguez said Thursday. ``If they are found, the shooting will start.''

The military blockaded a 60-mile-wide stretch of ocean after local radio quoted residents as saying they saw the hostages Wednesday night in a boat lined with grenades strung together. The Abu Sayyaf warned Tuesday, in its last public contact, that it will kill the captives IF the military tries to rescue them.

Unconfirmed reports put at least some of the hostages on at least three islands. When the military went to check, it found nothing.

Military spokesman Brig. Gen. Edilberto Adan said the abductors will try to slip from island to island in their home waters, using stealth, new equipment and support of some sympathetic residents.

He said the blockade was aimed at preventing access to southern islands where the Abu Sayyaf operates, especially Jolo, where the group has its main bases.

Adan said the U.S. government offered to help the Philippines search for the hostages.

"We don't need combat troops here," Adan said. "What is needed here is information." He noted that the area where the Abu Sayyaf operates is scattered with more than 60 islands.

The U.S. Embassy issued said it remains in close contact with the Philippine government because three Americans are among the hostages. "All of the hostages should be released immediately, safely and unconditionally," the statement said.

The Abu Sayyaf, which claims to be fighting for a separate Muslim state, seized 10 foreign tourists about a year ago from a Malaysian resort. Most were released for millions of dollars in ransom.

MANILA, June 1 (AFP) -The Philippine military said Friday that a soldier was among reported casualties in a battle against Abu Sayyaf rebels holding 20 American and Filipino hostages in southern Basilan island.

An Abu Sayyaf spokesman had told a local radio station earlier Friday that two of the hostages were hit by gunfire.

"There are reported casualties but we are verifying who has been wounded. One thing we know is that one of our officers has been wounded," Armed Forces of the Philippines spokesman Brigadier General Adan told a news conference in Manila.

MANILA (Reuters) - The Philippine military confirmed that soldiers had clashed on Friday with Muslim rebels who kidnapped 20 people last weekend, but said the fighting was on the southern island of Basilan.

A spokesman for the Abu Sayyaf rebels had claimed in a telephone call to a local radio station that the fighting was on another island, Jolo, 960 km (600 miles) south of Manila. He also said two hostages were killed in the clash but refused to identify them.

"The operation is ongoing, contact with the terrorists is ongoing," Brigadier-General Edilberto Adan told reporters. "This group whom we have encountered is holding hostages."

The rebels said after kidnapping 20 hostages, including three Americans on Sunday, that they had split them into two groups and taken one group to Jolo and one to Basilan. They said on Friday that they had taken a further 10 hostages, mostly fishermen, since then.

Adan said the fighting was on the eastern side of Basilan island, 120 km (70 miles) north of Jolo. Adan did not say anything about the condition of the hostages and said further details were awaited.

"Yes, it's true," Villanueva said, speaking to AFP by mobile phone, when asked to confirm a claim by Abu Sayyaf leader Abu Sabaya that fighting had erupted in southern Basilan island where the hostages were reportedly taken.

Villanueva declined to give further details, but Colonel Jose Mendoza, spokesman for the military's southern command in nearby Zamboanga city, said that sporadic clashes were still ongoing.

Sabaya told the Radio Mindanao Network by telephone early Friday that the army attacked the rebels and hostages while they were washing in a river at Sampinip complex in the heart of Basilan island.

Sampinip is a 50-kilometer (30-mile) complex encompassing rugged hinterland areas and mountain terrain that includes the Basilan capital of Isabela.

Sabaya claimed that two of the captives were hit by gunfire, but did not identify them.

"The soldiers raided and opened fire on the Abu Sayyaf and the hostages (who were) bathing and swimming in the river," Abu Sabaya told the radio station, as the sound of gunfire reverberated in the background.

Sabaya also threatened to begin killing the 20 hostages, including three Americans, seized from a holiday resort off western Palawan island on Sunday. He said the group had also taken 10 fishermen hostage but this could not be verified.

Philippine rebels claim two hostages killed by army - A Filipino soldier guards a checkpoint outside Jolo in the southern Philippines on May 31 following the abduction of 20 tourists from an island resort near Palawan. Muslim rebels said on June 1 two hostages had been killed in clashes with the army. REUTERS/Erik de Castro

ZAMBOANGA, Philippines (Reuters) - Muslim rebels who kidnapped 20 people in the Philippines at the weekend said two hostages were killed on Friday when they were fired upon by the military while landing on a southern island.

The military said it could not confirm the report.

Abu Sabaya, a spokesman for the Abu Sayyaf rebels, did not identify the victims or say if they were from among the initial three Americans and 17 Filipinos abducted on Sunday.

He has claimed the group has kidnapped an additional 10 people, mostly fishermen, since then.

"The Philippine government does not seem to care about the hostages ... why should we?" Sabaya said in calls to two local radio stations. "They are no relations of ours."

He said if the assault continued, the rebels would begin executing hostages. The rebels and the hostages had just landed on the island of Jolo, 960 km (600 miles) south of Manila, when the attack started, he said.

Gunfire could be heard in the background as the radio stations broadcast his calls.

The military said it had not received any report of a clash and that it was checking. "It could be another ploy," military spokesman Brigadier-General Edilberto Adan told Reuters. "They can easily produce gunshots in the background.

"We are not saying it did not happen, but we have to check."

One of the hostages also came on air on a local radio station and appealed for an end to the military action.

"I'm one of the hostages here, we are appealing, I am appealing, on behalf of all the other hostages, to please, please refrain from these military actions," said a woman who was addressed by the radio station as "Ms. Ganzon".

The list of 20 hostages released by authorities includes "Teresa Ganzon" as among those taken by the Abu Sayyaf.

Asked about the rebels' claim that two hostages were killed, Ganzon said: "We got separated, that's what we heard that there were two who got hurt, that's why we are begging you to stop this so that the others won't get hurt.

"We are all right but these encounters are going to cost us our lives. We have children with us. I beg of you to please consider, to just sit down on the negotiating table and try and find a way to get everybody out safely," she said.

National security adviser Roilo Golez said in a radio interview: "You know these reports, there is no confirmation, we are evaluating that. They might be using the radio station for disinformation."

The Abu Sayyaf has an avowed goal of establishing an independent Muslim homeland in the south of the mainly Roman Catholic country, but its preoccupation appears to be kidnapping.

Last year, they used similar tactics to seize about two dozen mostly foreign hostages from nearby Malaysian resorts and took them on speedboats to Jolo, slipping through naval patrols.

They also kidnapped several other people on Jolo, including foreign journalists, triggering a hostage crisis that lasted for months, to Manila's deep embarrassment.

President Gloria Macapagal Arroyo has announced a reward of 100 million pesos ($2 million) for information leading to the capture of the rebels and vowed to crush the group, saying the government was sticking to a no-ransom policy.

ZAMBOANGA, Philippines (Reuters) - Muslim rebels who kidnapped 20 people in the Philippines at the weekend said two hostages were killed on Friday when they were fired upon by the military while landing on a southern island.

The military said it could not confirm the report.

Abu Sabaya, a spokesman for the Abu Sayyaf rebels, did not identify the victims or say if they were from among the initial three Americans and 17 Filipinos abducted on Sunday.

He has claimed the group has kidnapped an additional 10 people, mostly fishermen, since then.

"The Philippine government does not seem to care about the hostages ... why should we?" Sabaya said in calls to two local radio stations. "They are no relations of ours."

He said if the assault continued, the rebels would begin executing hostages. The rebels and the hostages had just landed on the island of Jolo, 600 miles south of Manila, when the attack started, he said.

Sounds of gunfire could be heard in the background as the radio stations broadcast his calls.

The military said it had not received any report of a clash and that it was checking. "It could be another ploy," military spokesman Brigadier-General Edilberto Adan told Reuters. "They can easily produce gunshots in the background."

"We are not saying it did not happen, but we have to check."

One of the hostages also came on air on a local radio station and appealed for an end to the military action.

"I'm one of the hostages here, we are appealing, I am appealing, on behalf of all the other hostages, to please, please refrain from these military actions," said a woman who was addressed by the radio station as "Ms. Ganzon."

The list of 20 hostages released by authorities includes ''Teresa Ganzon'' as among those taken by the Abu Sayyaf.

Asked about the rebels' claim that two hostages were killed, Ganzon said: "We got separated, that's what we heard that there were two who got hurt, that's why we are begging you to stop this so that the others won't get hurt."

"We are all right but these encounters are going to cost us our lives. We have children with us. I beg of you to please consider, to just sit down on the negotiating table and try and find a way to get everybody out safely," she said.

National security adviser Roilo Golez said in a radio interview: ``You know these reports, there is no confirmation, we are evaluating that. They might be using the radio station for disinformation.''

The Abu Sayyaf has an avowed goal of establishing an independent Muslim homeland in the south of the mainly Roman Catholic country, but its preoccupation appears to be kidnapping.

Last year, they used similar tactics to seize about two dozen mostly foreign hostages from nearby Malaysian resorts and took them on speedboats to Jolo, slipping through naval patrols.

They also kidnapped several other people on Jolo, including foreign journalists, triggering a hostage crisis that lasted for months, to Manila's deep embarrassment.

President Gloria Macapagal Arroyo has announced a reward of 100 million pesos ($2 million) for information leading to the capture of the rebels and vowed to crush the group, saying the government was sticking to a no-ransom policy.

ZAMBOANGA, Philippines (Reuters) - Muslim rebels who kidnapped 20 people in the Philippines at the weekend said two hostages were killed on Friday when they were fired upon by the military while landing on a southern island.

The military said it could not confirm the report.

Abu Sabaya, a spokesman for the Abu Sayyaf rebels, did not identify the victims or say if they were from among the initial three Americans and 17 Filipinos abducted on Sunday.

He has claimed the group has kidnapped an additional 10 people, mostly fishermen, since then.

"The Philippine government does not seem to care about the hostages ... why should we?" Sabaya said in calls to two local radio stations. "They are no relations of ours."

He said if the assault continued, the rebels would begin executing hostages. The rebels and the hostages had just landed on the island of Jolo, 600 miles south of Manila, when the attack started, he said.

Sounds of gunfire could be heard in the background as the radio stations broadcast his calls.

The military said it had not received any report of a clash and that it was checking. "It could be another ploy," military spokesman Brigadier-General Edilberto Adan told Reuters. "They can easily produce gunshots in the background."

"We are not saying it did not happen, but we have to check."

One of the hostages also came on air on a local radio station and appealed for an end to the military action.

"I'm one of the hostages here, we are appealing, I am appealing, on behalf of all the other hostages, to please, please refrain from these military actions," said a woman who was addressed by the radio station as "Ms. Ganzon."

The list of 20 hostages released by authorities includes ''Teresa Ganzon'' as among those taken by the Abu Sayyaf.

Asked about the rebels' claim that two hostages were killed, Ganzon said: "We got separated, that's what we heard that there were two who got hurt, that's why we are begging you to stop this so that the others won't get hurt."

"We are all right but these encounters are going to cost us our lives. We have children with us. I beg of you to please consider, to just sit down on the negotiating table and try and find a way to get everybody out safely," she said.

National security adviser Roilo Golez said in a radio interview: "You know these reports, there is no confirmation, we are evaluating that. They might be using the radio station for disinformation."

The Abu Sayyaf has an avowed goal of establishing an independent Muslim homeland in the south of the mainly Roman Catholic country, but its preoccupation appears to be kidnapping.

Last year, they used similar tactics to seize about two dozen mostly foreign hostages from nearby Malaysian resorts and took them on speedboats to Jolo, slipping through naval patrols.

They also kidnapped several other people on Jolo, including foreign journalists, triggering a hostage crisis that lasted for months, to Manila's deep embarrassment.

President Gloria Macapagal Arroyo has announced a reward of 100 million pesos ($2 million) for information leading to the capture of the rebels and vowed to crush the group, saying the government was sticking to a no-ransom policy.

ZAMBOANGA, Philippines (Reuters) - Muslim rebels who kidnapped 20 people at the weekend in the Philippines said they were fired on by the military when they landed on a southern island on Friday and that two hostages were killed.

Abu Sabaya, a spokesman for the Abu Sayyaf rebels, did not identify the victims or say if they were among the initial three Americans and 17 Filipinos abducted on Sunday.

He has claimed the group has kidnapped an additional 10 people, mostly fishermen, since then.

"The Philippine government does not seem to care about the hostages... why should we?" Sabaya said in calls to two local radio stations. "They are no relations of ours."

He said if the assault continued, the rebels would begin executing hostages. The rebels and the hostages had just landed on the island of Jolo, 960 km (600 miles) south of Manila, when the attack started, he said.

Sounds of gunfire could be heard in the background as the radio stations broadcast his calls.

The military said it had not received any report of a clash and that it was checking. "It could be another ploy," military spokesman Brigadier-General Edilberto Adan told Reuters. "They can easily produce gunshots in the background.

"We are not saying it did not happen, but we have to check."

The Abu Sayyaf has an avowed goal of establishing an independent Muslim homeland in the south of the mainly Roman Catholic country, but its preoccupation appears to be kidnapping.

Last year, they used similar tactics to seize about two dozen mostly foreign hostages from nearby Malaysian resorts and took them on speedboats to Jolo, slipping through naval patrols.

They also kidnapped several other people on Jolo, including foreign journalists, triggering a hostage crisis that lasted for months, to Manila's deep embarrassment.

President Gloria Macapagal Arroyo has announced a reward of 100 million pesos ($2 million) for information leading to the capture of the rebels and vowed to crush the group, saying the government was sticking to a no-ransom policy.
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